So, you just acquired a property and you’re going to wholesale it! Great! What are you going to list it for?
I network with other investors and wholesalers in the same way that I teach others to do. Recently, I met a local wholesaler who gave me the number to a third wholesaler who “has a lot of inventory, but is known to list everything way too high, so don’t get your hopes up.”
This doesn’t make any sense to me. I’m surprised he has any business let alone repeat business (I honestly don’t know if he does). If you’re wholesaling homes to other investors (or anyone), you need to attract motivated buyers by passing on some of the profits to them. If I purchase a house for $50,000 and sell it to an investor for $60,000, but the retail price of that house is only $80,000, and it needs more than $15,000 in renovations, by the time the investor has paid the contractors, holding costs, real estate commissions, they’ve lost money! Are they going to come back for more? NO.
You can’t afford to be greedy wholesaling, or you risk building this type of reputation until you can’t find investors to take your inventory. Not to mention you’ll pay for it in holding costs for houses that won’t sell.
Wholesaling is a volume-based business, and you win by doing it consistently and quickly.
So, how do you determine this golden price? How do you correctly price a wholesale deal?
It’s not a consistent number. You can mark some deals up a few thousand and others $15,000.
First, you must determine the after repair value of the house. What will the house sell for on the retail market after renovations?
Then, just as if you were going to flip the house, you should get a ballpark idea of the repair costs. Just like my example above, if the margins are too tight for the investor to make money, you aren’t going to keep anyone happy. But, like the example above, if I bought it for $50k and sold it for $60, and the ARV was $80k but it only needed a new dish washer, then the deal’s good! The greater the margin between what you buy it for and what the ARV of the home is, the higher you can mark it up, but only if it doesn’t need so much work that the margin becomes obsolete.
Wholesaling can be done fast, it can be done in volumes, and it can bring it a significant profit for you if it brings in a high profit for investors. Think of it this way, if you bought the house for the price you’re trying to wholesale it for, would you make money flipping it? If the answer is no, you’ve priced it too high.
If you want to learn the details of pricing a wholesale deal to maximize profits while maintaining enough “meat on the bone” for the purchasing investor, I’ll be going over this and much more at the next Funding Tour. Find one in your area and let me pay for your $497 seat. You’ll get an intro course to this and other wholesale and retail strategies, as well as connect with people (like myself) who are willing to wholesale at a fair value. CLICK HERE for details or call us at 800-533-1622 to secure your seat while I’m still paying for them.
To read about a wholesale deal I recently did where the profit margins were significant on both ends, CLICK HERE.
To Your Success;
Lee A. Arnold
The Lee Arnold System of Real Estate Investing
To read more articles click here.